Questions: Quiz 2 (Chapters 4-6) Question 23 - Quiz 2 (Chapters 4 Assume the following information for a company that produced 10,000 units and sold 9,000 units during its first year of operations: Per Unit Per Year Selling price 200 Direct materials 81 Direct labor 50 Variable manufacturing overhead 9 Sales commission 8 Fixed manufacturing overhead 300,000 Using variable costing, what is the company's net operating income?

Solution Steps

To calculate the company's net operating income using variable costing, follow these steps:

1. Calculate the total variable cost per unit by summing direct materials, direct labor, variable manufacturing overhead, and sales commission.
2. Determine the total variable cost for the units sold by multiplying the total variable cost per unit by the number of units sold.
3. Calculate the total contribution margin by subtracting the total variable cost for the units sold from the total sales revenue (selling price per unit multiplied by the number of units sold).
4. Subtract the fixed manufacturing overhead from the total contribution margin to find the net operating income.

The total variable cost per unit is calculated as follows: \[ \text{Total Variable Cost per Unit} = \text{Direct Materials} + \text{Direct Labor} + \text{Variable Manufacturing Overhead} + \text{Sales Commission} \] Substituting the values: \[ \text{Total Variable Cost per Unit} = 81 + 50 + 9 + 8 = 148 \]

The total variable cost for the units sold is given by: \[ \text{Total Variable Cost} = \text{Total Variable Cost per Unit} \times \text{Units Sold} \] Substituting the values: \[ \text{Total Variable Cost} = 148 \times 9000 = 1332000 \]

The total sales revenue is calculated as: \[ \text{Total Sales Revenue} = \text{Selling Price per Unit} \times \text{Units Sold} \] Substituting the values: \[ \text{Total Sales Revenue} = 200 \times 9000 = 1800000 \]

The total contribution margin is determined by: \[ \text{Total Contribution Margin} = \text{Total Sales Revenue} - \text{Total Variable Cost} \] Substituting the values: \[ \text{Total Contribution Margin} = 1800000 - 1332000 = 468000 \]

Finally, the net operating income is calculated as: \[ \text{Net Operating Income} = \text{Total Contribution Margin} - \text{Fixed Manufacturing Overhead} \] Substituting the values: \[ \text{Net Operating Income} = 468000 - 300000 = 168000 \]

Final Answer